The term “know your vendor” gets thrown around in compliance and procurement circles. By the time your organization selects a potential third party for its expertise and reputation you have likely expended money, time and man-hours to vet your third parties. You should also allot time to collect key information about the company. But that is not all. You have one last set of steps to conduct before initiating the relationship with your vendor – examining the financial health of a vendor.
Why is the financial health of your vendors important?
One imperative component of effective vendor screening is to examine the financial health of the company. After all, it could put your company’s reputation, and even ability to service your client, in peril if the vendors you rely on are not able to deliver and/or have a history of defrauding or defaulting on their commitments.
What are some of the best practices to examine the financial health of your vendors to avoid this risk?
The following 8 items should be checked and/or monitored:
- Credit History Score – payment trends and risk score/rating
- Dunn & Bradstreet – Business Profile
- Bank references for payment history-
- Ownership/subsidiaries/parent company
- Possible civil litigation, judgments. tax liens, UCC’s and/or Bankruptcy Search
- News Periodical/Google Search – derogatory comments or news stories
- Search against your internal database for history and feedback
- Does the company have a Government Services Administration (GSA) Number- if so, they have to disclose their lowest prices
NOTE: It is very important to know which data the vendor submitted vs. data that third parties collected and verified. (For example, if the company self reported their revenue as between $1M and $5M- does that mean $1,000,001 or $4,500,000?)
How often should you monitor the financial health of the company?
It depends on your risk tolerance. The best practice is to subscribe to a vendor monitoring service that alerts when certain significant events, such as a lien, bankruptcy, delinquent pay status, or ownership change is reported. These are also important as they may trigger a contractual notice to you by the vendor or even by you to a client.
Monitoring the financial health of your future and current vendors further eliminates potential risks of putting your company in unlawful situations. Vendors are an integral part in healthcare delivery. It is almost impossible to imagine healthcare without depending on vendors. Therefore it is imperative to ensure compliant services by incorporating vendor risk management into your compliance plan.
For further reading:
5 Steps to Ensure Vendor Compliance
Fighting Healthcare Fraud with Fraud Enforcers: ROI is good for DOJ
OIG Exclusion vs. Termination
A Sanction Screening Deep-Dive: what is it and why it matters?
Written by Michael Rosen, ESQ
ProviderTrust Co-Founder, email@example.com
Michael brings over 20 years of experience founding and leading risk mitigation businesses, receiving numerous accolades such as: Inc Magazine’s Inc 500 Award and Nashville Chamber of Commerce Small Business of the Year
Connect with Michael on Linkedin